Farmers may deduct special depreciation on implements. If a SBE is not a SBE anymore, ie turnover too high but it is involved in farming, is the special depreciation applicable?
Important:
This answer is based on tax law year ending 28 February 2019.
Answer:
For purposes of the guidance that follows we accept that the company is a small business corporation under section 12E of the Income Tax Act.
Note, a small business corporation would not be able to elect to make a deduction under section 12E(1A) in respect of machinery, implements, utensils or articles (livestock, a motor vehicle, caravan, or aircraft (not for crop spraying) excluded) used in carrying on farming operations. The deduction is made under section 12B. The fact that the company ceased to be a small business corporation is then irrelevant.
Section 12E(1A)(b) does not require the taxpayer to be small business corporation in the succeeding years of assessment. The deduction, in respect of assets subject to the election, is then made in the years based on the qualifying year – the year the asset was brought into use.
SARS agrees with this in their practice generally prevailing – we copy from that:
“As a result, even if the taxpayer no longer qualifies as an SBC in the second or third years of assessment, it will still qualify for the 30% and 20% deductions provided it complies with the trade usage requirement of section 11(e).”